The SEC recently issued a release adopting new Rule 204-5 and Form ADV-Y2K under the Investment Advisers Act of 1940. The rule, which will become effective on November 13, 1998, will require most registered investment advisers to file reports with the SEC regarding their plans to address the Year 2000 problem.
An investment adviser that is registered with the SEC will be required to file Form ADV-Y2K if the adviser either:
- has at least $25 million in assets under management (as reported in Schedule I of the adviser's most recently filed Form ADV or Form ADV amendment), or
- is an adviser to an investment company registered under the Investment Company Act of 1940.
Form ADV-Y2K has two parts. The first part contains several questions about an adviser's plans to address the Year 2000 problem with respect to all of its clients. The second part contains questions regarding the readiness of investment companies and must be completed only by advisers to registered investment companies.
Each covered adviser must file Form ADV-Y2K no later than December 7, 1998, and must file an updated form no later than June 7, 1999. Each filing must address the status of the adviser's preparations to address the Year 2000 problem as of a date within 15 days before the filing deadline. The SEC will mail a copy of the form to each registered adviser. The form will also be available on the SEC's web site (www.sec.gov), and a list of frequently asked questions (FAQs) about the form and filing requirements is already available on the site and will be updated periodically.
The SEC has been raising Year 2000 concerns in adviser and fund examinations over the past few years and plans to focus on advisers' and funds' preparations to address the problem in future examinations. The SEC's staff will use the responses in Form ADV-Y2K to evaluate the status of advisers' preparations, identify advisers that pose a significant risk to their clients and shareholders, and evaluate the adequacy of disclosures made by advisers regarding the Year 2000 problem.
Both funds and advisers should have already begun addressing potential Year 2000 problems in their computer systems. Almost one year ago, Chairman Levitt suggested that preparing for Year 2000 should be one of the highest priorities for advisory firms, especially for advisers to mutual fund groups, where the advisers typically have computer links to custodians, transfer agents, broker-dealers, and other service providers. A fund's board of directors or trustees should also be monitoring the progress of the fund's advisers and service providers in addressing potential problems. As part of that process, the board should review the Form ADV-Y2K reports of the fund's advisers. In addition, funds and advisers should pay close attention to their disclosure regarding the Year 2000 problem. The SEC recently published an interpretive release to provide guidance to funds and advisers on their disclosure obligations.
Full copies of the new rule and interpretive release may be found online as follows: Investment Adviser Year 2000 Reports, Rel. No. IA-1769 (Oct. 1, 1998) at www.sec.gov/rules/final/ia1769.htm; and Disclosure of Year 2000 Issues and Consequences by Public Companies, Investment Advisers, Investment Companies, and Municipal Securities Issuers, Rel. Nos. IA-1738 and IC-23336 (Jul. 29, 1998) at www.sec.gov/rules/concept/33-7558.htm.